Sorry Kids

Once again we’re coming up on holiday season, and once again we have a bunch of retailers and toy manufacturers who tried to guess the latest trend in toys almost a year ago.

Why a year ago? Because that’s how long it takes to get a distant “cheap labor” supplier up and running and then to ship the product across vast oceans.
But trends are a fickle thing, and predicting them a year in advance is something of an inexact science. So what happens?

It’s not even Thanksgiving and some stores are already running out of hot toys. Blame cautious buying by retailers trying not to get stuck with unsold inventory, as they were last year.

Among the items in short supply is a surprise hit: Zhu Zhu Pets, toy hamsters programmed to scamper around a plastic “house” whose rooms are connected by tunnels. The sets are sold out at Target.com and Wal-Mart.com. Meanwhile, the maker, tiny Cepia in St. Louis, is scurrying to get more shipments from China.

So how does that cheap labor compare against the added cost to manage low inventories, expedite new shipments, and especially lost sales from empty shelves? Or the look on a kid’s face when he or she doesn’t get the desired toy?

Comments

Agreed, they write as though this is the only option to reduce inventory risks. It leaves opportunities for those that know how to manage to prosper, though. I wrote about this a few days ago vhttp://management.curiouscatblog.net/2009/11/20/lean-inventories-do-not-excuse-failing-to-deliver/

While are costs (flexibility, transportation time, higher minimum orders) associated with transoceanic supply chains, there are also ways to mitigate (but not eliminate those costs). Smart manufacturing executives in China (or anywhere) will organize production and purchasing so that it is flexible enough even with the long supply chain. Yes, it means squeezing waste out of other aspects of the operations, and it may mean keeping small but strategic buffer stocks (replenished via a pull Kanban system) in the States and/or in the China facility.

Also, cheap labor (as I’ve said many times) is not the only driver of the decision about where to manufacture/purchase (although it is an important factor). Actually, labor costs are a less-important factor than they were 10 or 15 years ago, as material costs and transportation costs have risen.

There are a number of really GOOD reasons why a US company may wish to manufacture or purchase from China as opposed to the US. If it’s strictly a matter of chasing cheap labor (which it rarely is, these days) then that company has likely not done its homework.